Strategic Location Choice and Network Formation for Entry

Abstract

In our model, an entrant has two effective strategies for profit maximization: collaboration with incumbents and location choice. We analyze the effect of allowing an entrant the opportunity to collaborate with incumbents on its location choice. First, we show that when collaboration requires mutual consent, the entrant has an incentive to choose a noncentral location to collaborate with incumbents and facilitate its entry. Second, the existing collaboration among incumbents does not always deter entry; rather, this effect depends on the magnitude of the collaboration effect.